Despite Economy, the Prospects for Green Energy Remain Strong

The economic downturn need not halt the development of green energy. In fact, with renewable technologies improving dramatically and new U.S. policies emerging, continued progress toward an energy revolution is inevitable.By jackson robinson and elizabeth levy

Less than a year ago, the dawn of a new age of green energy seemed to be at hand. Oil prices were climbing to a peak of $140 a barrel. Climate change was embedded deeply in the popular consciousness, and companies and countries all over the world were accelerating efforts to create a lower-carbon society. In the U.S., consumption of solar energy had grown by more than 11 percent in 2007 and wind by more than 20 percent.

In the ensuing months, however, the world has suffered one of the great financial collapses in modern history, and oil prices have plummeted from their dizzying heights to as low as $35 a barrel. Stocks of green energy companies have been severely battered, as the widely-followed WilderHill Clean Energy Index fell by a whopping 70 percent in 2008, terrible even when compared to the dismal 38.5 percent fall of the bellwether S&P 500 index. Funding for some renewable energy projects has dried up, and some people now question green energy’s staying power.

But despite this economic gloom, 2008 was one of the best years on record for renewable energy — in terms of policy progress in the U.S. — and 2009

As the costs of traditional and renewable electricity are converging, we are nearing the holy grail of renewable energy — grid parity.

has continued that trend. Barack Obama was elected on a platform promising a transformation of the nation’s environmental and energy policies. The stimulus bill passed in 2008 provided support to the growth of clean and efficient energy for years to come, and introduced the concept of improving building efficiency as a source of green jobs, both themes continued and expanded in 2009’s stimulus plan. Obama and Congress are committed to devoting more than $150 billion in the coming decade to developing alternative energy sources and vastly improving energy efficiency.

Incredible growth opportunities. Unprecedented economic misfortune. In the face of such powerful and conflicting forces, the question remains: Can the growth in green energy continue?

To answer this question, we started by looking backwards, and challenging some core beliefs and assumptions that we have long held about the growth of green energy. And despite the current economic morass, we find our bullish assumptions on green energy unchanged — indeed, even strengthened. Our conviction is based, in part, on five basic trends that have been building in recent years.

1. Energy consumption will continue to grow.

Current economic conditions have resulted in many industries grinding to a halt, reducing their demand for energy. However, despite lowering its short-term growth projections for energy demand, the International Energy Agency (IEA) still predicts continued long-term growth in every imaginable scenario, with its base case forecasting a 45 percent increase in worldwide energy consumption by 2030. Even in scenarios that factor in a price being levied on carbon emissions (translating into significantly higher energy prices), demand for energy still grows. In one scenario where carbon is priced at a lofty $90 per ton in 2030, the IEA still predicts 1.2 percent annual demand growth. Factors such as population growth and income growth in developing countries mean that energy demand is likely to be extremely inelastic in the future — so long-term growth is expected to continue.

2. The marginal cost of new oil production is rising over time.

Estimates of marginal production costs are highly location-dependent and therefore hard to generalize. Many new production sites, such as the Canadian tar sands, various deep sea wells, and Arctic sites newly accessible to exploration (accessible, ironically, because of Arctic melting that is widely attributed to global warming), are more complex and difficult to access than historic ones, requiring much greater investment. Chevron’s Vice Chairman Peter Robertson, for example, has predicted that the cost of new production in the Gulf of Mexico’s deepwater sites could exceed $95 a barrel.

We are currently seeing the effects of the high costs of drilling for new oil: Many of the exotic new projects were suspended or cancelled as oil prices dropped in the second half of 2008. As the global economy recovers, oil demand will increase again, leading to another cycle of oil price volatility and a resumption of new, and more expensive, production.

3. Green energy technologies are improving in terms of both cost and capabilities.

Green energy technologies are undergoing a rapid improvement both in performance and in the costs of production. As manufacturing becomes more advanced and industry volumes grow, the cost per unit of renewable energy is steadily dropping. At the same time, the price of standard electricity from the grid has been increasing; according to the Energy Information Administration (EIA), the retail cost of electricity for consumers actually increased 20 percent between January 2006 and November 2008 (the latest data available), a fact often lost amid the news about falling oil prices.

As the costs of traditional and renewable electricity are converging, we are nearing the holy grail of renewable energy — “grid parity,” the point where the costs of producing renewable energy and the costs of traditional, carbon-based energy become equal. According to Ernst & Young’s estimates of the price of solar electricity, solar has already achieved grid parity with the help of subsidies in New Jersey, California, Massachusetts, North Carolina, and Connecticut, and without subsidies in Hawaii. Once we reach the point where there’s no difference in price between “green” and “brown” electricity, adoption of green energy will happen on a massive scale.

4. Increasingly, energy is a national security issue.

No one in America wants to be overly dependent on foreign oil imports and potential disruptions in supply caused by the likes of Venezuela’s Hugo Chavez or Russia’s Vladimir Putin.

5. Momentum is building for action against climate change.

Awareness of climate change continues to grow, consensus around the need for action has solidified, and the prospects for global action on climate change continues to progress, with U.S. participation in the process finally gaining significant traction. As nations prepare for the next round of international climate negotiations in Copenhagen in December, hopes are high that the U.S. will finally be a partner, rather than an obstacle.

At home, President Obama is already ushering in a new approach to climate change and energy independence. The February stimulus bill, the American Recovery and Reinvestment Act of 2009, prominently features

Questions about climate regulation and the future cost of greenhouse gas emissions have shifted from “if” to “when.”

investments in green energy as one of the tools to restart the economy. It contains more than $20 billion for the green economy, including renewable energy and energy efficiency programs, grants, bonds and loans — a sum unimaginable even six months ago. And an energy bill containing a national minimum requirement of renewable energy is looking increasingly likely this year, as well as some kind of climate legislation during Obama’s first term. Together, these represent a major transformation of U.S. energy policy.

These five trends have been evident for some time. Yet just as important are several new developments that have come into sharper focus in recent months and more clearly indicate the direction we are now heading. These latest trends are a strong sign that a massive societal shift to cleaner energy is not some future event, but is happening right now.

Utilities and investors are backing away from coal due to its economic and environmental risks.

Many in the U.S. are thinking twice before planning new coal-fired generation facilities – and investors are thinking twice before investing in them. One of the drivers for this slowdown is uncertainty regarding regulations. As Lisa Jackson settles in as the Environmental Protection Agency administrator, she is revisiting many of the decisions made by the Bush administration. For example, the EPA is widely expected to rule soon that carbon dioxide and other greenhouse gases are harmful to human health and therefore can be regulated under the Clean Air Act. Such a ruling will undoubtedly make reliance on coal-fired power plants an even less attractive option in the future.

Questions about climate regulation and the future cost of greenhouse gas emissions have shifted from “if” to “when,” even as details have yet to be agreed upon. In the absence of concrete information, some investors are beginning to factor in a price for carbon on their own. For example, Bank of America’s Chairman and CEO Ken Lewis has stated that the bank is now factoring carbon pricing into risk and underwriting models, estimating the price of carbon at $20-$40 per ton.

This regulatory and pricing uncertainty, coupled with the current drop in energy demand, is causing utilities to rethink plans to invest in new coal-fired generating capacity. In January 2009, the developers of a coal-fired power plant in Montana abandoned a project they had already sunk $44 million — and five years — into, claiming that the 250-megawatt proposal “just simply cannot be accomplished” given the current “aura of uncertainty” surrounding coal-fired power.

Renewables are financeable.
At the same time that fossil fuels, such as coal, are becoming less attractive, renewable energy sources — such as solar and geothermal power — are becoming more attractive. Even in this dismal economic climate, solid projects are being funded and completed, and proving their effectiveness.

February’s stimulus bill contains myriad funding sources for green energy projects, including tax incentives, loan guarantees and direct credits. Dollars from these programs are beginning to flow; in mid-March, Energy Secretary Steven Chu announced the first loan guarantees for green energy were beginning to be released.

Detroit is counting on green.
After years of losing market share and making inefficient cars that American consumers increasingly didn’t want, it seems that domestic car companies are at last committed to going green. The near-collapse of Detroit’s auto industry, the federal bailout of General Motors and Chrysler, and the insistence of the Obama administration and Congress that Detroit start producing hybrids, electric vehicles, and far more fuel-efficient cars — all signal that a major change is finally at hand.

Green isn’t just about the environment anymore.
One of the most heartening developments over the last few months has been the transformation of green energy from an environmental interest to an economic and national security interest. Previously, solar panels and wind turbines were viewed only as tools to fight climate change. Now, however, they are viewed as tools for job growth and economic recovery, and President Obama has made room for green energy and climate change in his budget, even including revenues from a cap-and-trade carbon regulation.

Given this heady combination of factors, we believe that growth in green energy and clean technology will continue for many years to come. The dangers of a fossil fuel-driven world are enormous; climate change and other environmental hazards are real and growing threats to our survival. Our collective awareness of these problems and our drive to tackle them head-on have reached critical mass around the world. And the primary solutions to the problems — renewable energy sources and efficiency technologies — are becoming more effective, more scalable, and less expensive by the day.

The time for the green energy revolution is now. The current recession may slow down its progress, but forward movement seems inevitable.

ABOUT THE AUTHOR

Jackson Robinson
is president and founder of Winslow Management, a Boston-based investment advisory firm that specializes in green investing, including organic food production and renewable energy. He serves on the advisory board of the American Council for Renewable Energy (ACORE) and participates in the Brown Forum for Enterprise. Elizabeth Levy is Winslow's senior environmental analyst, researching the environmental attributes of companies in Winslow's portfolio.

COMMENTS

There could be no better investment in America than to invest in America becoming energy independent. We need to utilize everything in out power to reduce our dependence on foreign oil including using our own natural resources.

Create cheap clean energy, new badly needed green jobs and reduce our dependence on foreign oil. The high cost of fuel this past year seriously damaged our economy and society.

The cost of fuel effects every facet of consumer goods from production to shipping costs. It costs the equivalent of 60 cents per gallon to charge and drive an electric car. If all gasoline cars, trucks, and SUV's instead had plug-in electric drive trains the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota. We have so much available to us such as wind and solar.

Let's spend some of those bailout billions and get busy harnessing this energy.

There is a really good new book out by Jeff Wilson called The Manhattan Project of 2009 Energy Independence Now. http://www.themanhattanprojectof2009.com

Posted by
sherry
on 30 Mar 2009

Why didn't they announce the release of the money from the DOE ATVM and Loan Guarantee programs today, too? Tesla, Fisker and the other American Car companies did not screw up like Detroit, yet they get punished by having their funding frozen.

Posted by
Carl Lee
on 30 Mar 2009

The more green energy that we use the cheaper the cost will be. Green breeds green. The initial cost might be high, but the price will come down with use and time.

I believe the most intellectual will go towards this green field. When the markets plummeted and the finance jobs unemployment rose, this became a signal to new college admittances to reconsider their careers. No longer will the best and the brightest be tempted by the ridiculous salaries of Wall Street.

Many of my green friends keep on telling me that large scale green energy technology is viable here and now. Good, I say, stop whining and start selling the stuff.

Oh, they say, but I need you to hobble my competition with punitive taxes and give us a lot of money as well — but we really are viable.

When greens stop putting their hands out for taxpayer’s money then I will believe that green energy is viable.

But be warned — if anyone actually developed green technology that was cost effective and reliable and could be scaled up to meet growing demands then they will be attacked by the greens. They will find a reason why the new technology is destroying the planet. This is because for true greens the enemy isn’t coal but modernity itself.

Posted by
Chris Maddigan
on 01 Apr 2009

I'm all for renewable energy and getting the U.S. off foreign oil. But let's not confuse doing so with the global warming hoax. The biggest problem with the global warming hoax is that it sucks up valuable resources on a wild goose chase; resources that are needed to deal with real, not political, problems.

Posted by
Shoshin
on 01 Apr 2009

Cap and trade, building "alternatives" that cannot add capacity, cannot clean the air and are unaffordable are designed to raise the cost of energy for all of us. When this happens the Obama administration has indicated that they are prepared to "step in" and take action against private companies when they "threaten the economy". It doesn't take a lot of imagination to see that the target of this threat is the oil companies.

Think it is a wild conspiracy theory, think again. One year ago did anyone suspect that the government would control most of the major financial institutions in this country? Did anyone dream that the government would control two of the three automobile manufacturers?

Every workable solution to provide energy is blocked. No development of Alaskan oil, no development of offshore oil, no nuclear, no Bakken Fields, no Destin Dome, no clean coal, no coal to oil, no shale oil. Anything that would give us affordable plentiful energy is blocked and trillions are spent on the absolutely most inefficient, most unreliable and most costly sources of power which leave us paying more and more for foreign oil. The aim is not to clean the air, the aim is not to get us off foreign oil; the aim is just the opposite. The goal is more and more expensive and scarcer energy giving leverage for more power.

Posted by
Dahun
on 01 Apr 2009

You're all laying down the same political arguments against renewable energy that have been rolled out in grassroots lobbyist movements throughout America over the last 30 years: "The government want more control over us," "AGW is a hoax," "'Greens don't like modernity." Ridiculous!

And you're ignoring the main point of the article, which is that over time renewable energy is getting more cost effective and more viable compared to non-renewables (particularly coal & oil). Basically, from here on in renewables are a better investment. Anyone who now starts investing heavily in things that use coal and oil is a fool, and anyone currently investing in them heavily will fight tooth and nail to protect their investments.

Let's face it, if over the last 30 years there were fewer lobbyists, green energy and energy independence in America would be much further advanced than what it is now. (Not to mention much cheaper.)

Greens don't like "modernity"? Seems like you lot are the ones who need to get with the times — stop living in the 1950s and start investing in the future.

Posted by
Bren
on 02 Apr 2009

Would you please take time to detail the who, what and when of STORING all this fictional alternative energy that you're touting. Where is the mechanism to handle "frequency keeping" - a major component of handling today's capacity/demand balance?

The dream gives everyone a warm, fuzzy feeling, but from cars to ethanol and all the wind and solar, this is a financial pipedream. You're not being forthright with your readers and clients.

Posted by
Bob
on 03 Apr 2009

Not that I like to argue, but let’s just say for argument’s sake we choose to double the wind power in the US. Currently this would require a 2% increase in generation capacity. OK, we want to increase power in the US by 2%. The number of nuclear plants required would be 10 at a cost of an average of $10 billion each as a maximum figure. That is $100 billion dollars which would be privately financed. On a cost per kw basis wind costs at least 1 ½ times nuclear for capital cost. This is $150 billion of which at least 50% would be paid for with federal and state monies. Now we have to take into account that the wind power would have an online efficiency of 25% compared to nuclear which would have a 90% online efficiency. The efficiency is a greater factor for wind as these outages are completely random while most outages for nuclear are planned shutdowns for maintenance at times of low usage.

The 2% increase from nuclear at 90% efficiency delivers a 1.8% actual increase in power. The 2% increase from wind yields an actual 0.5% increase in power. The cost per kwh of wind is over 15 cents while nuclear is less than 3 cents. Bottom line it costs 5 times as much for the power generated from wind, it costs 50% more to build the 0.5% of power than it does for the 1.8% gained by nuclear and wind requires 100% back-up from fossil fuels and operational back-up 75% of the time.

Now 20 years down the road the far more expensive wind farm has used up its expected life while the design of new nuclear plants is for 60 years. If we build the nuclear we would have at least three times the life producing power than the wind farm at less than 1/5 the cost for the power. Factor in the proposed carbon taxes for the back-up required from fossil fuel plants for the wind farm which would total trillions of dollars over the life of the facility and I don’t see how anyone could make any argument either financial or ecological to build wind power. It is an absolutely inane idea any way you look at it. I would like to have someone explain to me how they think this works with anything but platitudes.

Posted by
Dahun
on 03 Apr 2009

Nothing will bankrupt the country any quicker than pouring tax dollars down the rat hole of green energy, especially wind turbines. Wind is an industry that would not exist without all the tax grants, tax credits, and market manipulations. That millions of tax dollars go into gaining a fickle, trickle bit of electricity is asinine. Wind doesn't provide baseline power, isn't reliable, predictable. To gain the output of a 500 MW baseline plant, it takes about 1200 turbines, which based on our experience here in Maine would mean blasting away 300 miles of ridgelines, clearcutting more than 50,000 acres of land and stringing up so many new transmission lines that it would make the state look like Gulliver tied down by Lilliputians.

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